Reality of Consent/Meeting of Minds Flashcards
Contracts induced by misrepresentation/fraud/mistake/duress/undue influence are generally considered to be voidable, meaning…
The person whose consent was not real has the power to rescind (cancel) the contract and is entitled to the return of anything she gave to the other party, but by same token she must offer to return anything she received from other party
To rescind a contract based on misrepresentation/fraud/mistake/duress/undue influence, the person whose consent was not real must…
Act promptly and unequivocally
Object promptly upon learning the facts that give her the right to rescind
Clearly express her intent to cancel contract
Avoid any behavior that would suggest that she affirms/ratifies contract
Ratification of voidable contract
A person who had the right to rescind has elected not to do so: ratification ends right to rescind, so avoid unreasonable delay in notifying other party of her rescission, bc unreasonable delay communicates she ratifies contract, also avoid any conduct sending a mixed message
Meaning of misrepresentation
An assertion that is not in accord with the truth: if a person enters a contract bc of her justifiable reliance on a misrepresentation about some important fact, contract is voidable (even if person making the misrepresentation believes in good faith that what she says is true)
Misrepresentation can be (2)
- Innocent: not intentionally deceptive
- Fraudulent: made with knowledge of falsity and intent to deceive
Meaning of fraud
Type of misrepresentation that is committed knowingly(a person making a misrepresentation is considered to do so knowingly, if she knew her statement was false OR if she knew she didn’t have basis for making the statement OR is she made the statement without being confident that it was true), with intent to deceive (defendant knowingly made a misstatement of fact to a person who was likely to rely on it)
Tort liability of a person who commits fraud
May be liable for damages, possibly including punitive damages, for the tort of deceit
What is scienter?
Legal term for knowledge of falsity, which distinguishes fraud from innocent misrepresentation
A drastic remedy, such as recession should only be used when…
A person has been seriously misled about a fact important to the contract by someone she had the right to rely on
A person seeking to rescind a contract on the ground of innocent/fraudulent misrepresentation must be able to establish EACH of following statements:
- An untrue assertion of fact was made
- The fact asserted was material or the assertion was fraudulent
- The complaining party entered the contract bc of her reliance on the assertion
- The reliance of complaining party was reasonable
+ Proof that untrue assertion was made with scienter (for establishing fraud)
In tort actions in which plaintiff is seeking to recover damages for deceit, plaintiff has to establish injury, meaning…
She has to prove she suffered economic injury bc of her reliance on fraudulent assertion
To have misrepresentation/fraud, one of the parties must have made an untrue assertion of fact/engaged in conduct equivalent of an untrue assertion of fact, and fact asserted must be
Past/existing fact, distinguished from opinion, promise, prediction about some future happening
Concealment can be the equivalent of an assertion (basis for a claim of misrepresentation/fraud) if…
Concealment of a fact through some active conduct intended to prevent the other party from discovering the fact
Concealment can be the equivalent of an assertion (basis for a claim of misrepresentation/fraud) if…
Concealment of a fact through some active conduct intended to prevent the other party from discovering the fact
Nondisclosure can also be the equivalent of an assertion of fact, although differs from concealment, since…
Concealment involves active hiding of a fact, whereas nondisclosure is the failure to volunteer info
In case of innocent misrepresentation, person seeking to rescind contract must establish that the fact asserted was material, meaning…
It is likely to play a significant role in inducing a reasonable person to enter the contract/if person asserting the fact knows the other party is likely to rely on the fact
What is reliance?
A person pursues some course of action bc of her faith in an assertion made to her: there is a casual connection between the assertion and the complaining party’s decision to enter the contract
What is justifiable reliance?
Courts take into account the reasonableness of the behavior of complaining party by requiring her reliance to be justifiable: a person doesn’t act justifiably if she relies on an assertion false/not to be taken seriously
Problem of justifiable reliance
Determining extent to which relying party is responsible for investigating the accuracy of the statement on which she relies (class al contract law: person who doesn’t attempt to discover readily discoverable facts was not justified in relying on other party’s statements about them)
Meaning of mistake
Belief about a fact that is not in accord with the truth: mistake must relate to facts, as they exist at the time the contract is created, complaining party enters contract bc of a belief that is at variance with the actual facts
What is mutual mistake in drafting writing and its remedy?
Mistake made by both parties, which takes the form of erroneous expression of an agreement, caused by a clerical error in drafting/typing contract. Remedy is reformation of writing (modification of written instrument to express agreement)
Requirement of mutual mistake
Mutual mistake exists when both parties to contract have erroneous assumption about same fact, and resulting contract can be avoided if 3 elements are present:
1. Mistake relates to a basic assumption on which contract was made
2. Mistake has a material effect on the agreed-upon exchange
3. Party adversely affected by mistake doesn’t bear risk of mistake
Mistake about basic assumption
Adversely affected party doesn’t have the right to avoid contract unless mistake concerns a basic assumption on which contract was based (assumption about identity, existence, quality, quantity of the subject matter of contract), an assumption may be so basic, parties take it for granted
Material effect on agreed-upon exchange
Complaining person must show the imbalance caused by mistake is so severe that it would be unfair for the law to require her to perform the contract (+chance if shown that other party received an unbargained-for advantage)
The person harmed by the mistake cannot avoid contract if she is considered to bear the risk of mistake bc
Courts have the power to allocate risk of a mistake to adversely affected person whenever it is reasonable
Adversely affected person could bear risk of mistake when…
Expressly contracted to do so
She contracts with conscious awareness that she ignorant/has limited info about fact
Adversely affected person could bear risk of mistake when…
Expressly contracted to do so
She contracts with conscious awareness that she ignorant/has limited info about fact
Unilateral mistake exists when…
Only 1 party makes a mistake about a basic assumption on which she made the contract
Requirements to avoid contracts for unilateral mistake mistake
Prove elements necessary for unilateral mistake
+ Show 1 of the following
1. Non-mistaken party caused/had reason to know of the mistake (non mistaken party could’ve prevented loss by acting in good faith and informing person in error that she made a mistake)
2. It would be unconscionable to enforce contract (mistaken party has to convince court that consequences of mistake would make contract oppressive/harsh if enforced)
Meaning of duress
Wrongful coercion that induces a person to enter/modify a contract
Types of duress
- Physical duress: physical compulsion to enter a contract (rare, but when it occurs, court considers it void)
- Threat of physical, emotional, economic harm (contract is voidable at the option of victimised person)
Requirements to avoid contracts for duress
Establish both:
1. Contract was induced by an improper threat
2. Victim had no reasonable alternative but to enter into the contract
Economic duress/Business compulsion
Situation in which 1 person induces the formation/modification of a contract by threatening another person’s economic interests
Common coercive strategies:
Threaten breach of contract unless other party agrees to modify its terms
Offering disproportionately small amount of money in settlement of debt and refusing to pay more
Meaning of undue influence
Involves wrongful pressure exerted on a person through persuasion during bargaining process: gives relief to persons unfairly persuaded to enter int a contract while in a position of weakness that makes them vulnerable to being preyed upon by those they trust/fear
All contracts are based on persuasion (no precise line dividing permissible-impermissible persuasion), but undue influence cases normally involve both:
- Relationship between parties is either one of trust and confidence or one in which person exercising the persuasion dominates the person being persuaded
- Persuasion is unfair
Fraud requires proof of 5 elements
- False representation made by defendant
- Knowledge by defendant that representation was false when made
- Intent to induce plaintiff to act/refrain from acting
- Justifiable reliance by plaintiff
- Damage to plaintiff
A person claiming she was fraudulently induced to enter a contract has an election of remedies:
- Promptly after discovering fraud she may rescind contract
- She may affirm contract and sue for damages resulting from fraud
